The Federal Reserve will stage its annual Jackson Hole meeting this week. The markets are rallying into this because traders have been conditioned to buy stocks going into major Fed meetings/ announcements.
The rumors around Wall Street are that Yellen will point out how the US recovery remains weak and thus the Fed should continue to keep interest rates at zero.
The bigger picture that the financial media largely ignores is that the Fed is basically just making things up as it goes along, with little foresight. After all, the Fed suggested it would stop QE and raise interest rates when unemployment hit 6.5%. The Fed predicted this would happen in 2015.
However, it has already happened… not because QE has worked at generating growth (even the Fed admits that QE only lower
but because the BLS keeps massaging the data until unemployment falls. This of course raises the question, if the only reason unemployment is falling is because of statistical games… why even bother engaging in monetary policy?
Speaking of statistical games, even the absurdly inaccurate Consumer Price Index (CPI) has managed to put out a 2% inflation rate reading. The Fed claimed it would raise interest rates when we hit that threshold. Well, we hit it and the Fed commented that the increase in inflationary numbers was just “noise.”
It’s a good thing the BLS is working to massage that data point as low as it is too. If one were to look at the real rise in inflation, we’d be at 6%, but we couldn’t possibly argue for zero interest rate policy with inflation at those levels could we?
At the end of the day, the Fed has spent over $3.5 trillion. The Fed’s own research concludes that between this and ZIRP, it has lowered unemployment by 0.13%. Indeed, the Fed admits that without all of its policies, unemployment would be 1% higher than it is today.
That’s a truly staggering admission, particularly when you account for the fact that this is the Fed’s own research (you’re never going to hear the Fed state that unemployment would be lower without Fed intervention).
As bad as this is, it’s not exactly unique in the world of Central Bank failures. The Bank of Japan has spent an $1.4 TRILLION and Japan’s economy is only 0.8% higher today than it was when the QE program was announced.
At this point, one has to wonder, just what is the point of all the Central Banks’ activities? The QE efforts in the US and Japan (two of the biggest in history) haven’t really generated jobs or GDP growth… so just what ARE they doing?
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Best Regards
Phoenix Capital Research